SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
File Number 333-16867
Outsourcing Solutions Inc.
(Exact name of registrant as specified in its charter)
Delaware 58-2197161
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
390 South Woods Mill Road, Suite 150
Chesterfield, Missouri 63017
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (314) 576-0022
Check here whether the issuer (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
No (X)
As of March 31,June 30, 1997, the following shares of the Registrant's common stock
were issued and outstanding:
Voting common stock 3,425,126.01
Class A convertible nonvoting common stock 391,740.58
Class B convertible nonvoting common stock 400,000.00
Class C convertible and votingnonvoting common stock 1,040,000.00
5,256,866.59
Transitional Small Disclosure _______(check one): Yes [ ] No [X]
OUTSOURCING SOLUTIONS INC.
AND SUBSIDIARIES
INDEX
Part I. - Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheets
March 31,June 30, 1997 (unaudited) and
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
for the three and six month periods
ended March 31,June 30, 1997 and 1996 (unaudited) . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the threesix month periods ended March 31,June 30,
1997 and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial
Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Part II. - Other Information 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31,JUNE 30, DECEMBER 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,633 $ 14,497$8,035 $14,497
Cash and cash equivalents held
for clients 23,47722,133 20,255
Current portion of loans and
accounts receivable purchased 41,84648,690 42,481
Accounts receivable - trade, net of
allowance for doubtful receivables
of $1,186$996 and $879, respectively 20,84223,122 20,738
Deferred income taxes 3,6724,992 2,617
Other current assets 4,6354,196 3,736
Total current assets 106,105111,168 104,324
LOANS AND ACCOUNTS RECEIVABLE PURCHASED 26,82526,202 25,519
PROPERTY AND EQUIPMENT - Net 35,39734,708 36,168
GOODWILL - Less accumulated amortization
of $4,393$5,788 and $2,986, respectively 151,300149,705 152,707
OTHER INTANGIBLE ASSETS - Less
accumulated amortization of $19,355$25,926
and $12,751, respectively 14,1597,588 20,763
DEFERRED FINANCING COSTS - Less
accumulated amortization of $841$1,249
and $337, respectively 12,26411,828 12,563
DEFERRED INCOME TAXES 5,6047,617 3,163
TOTAL $ 351,654348,816 $ 355,207
JUNE 30, DECEMBER 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 6,0174,499 $ 6,495
Collections due to clients 23,47722,133 20,255
Accrued severenceseverance and office
closing costs 8,8826,232 11,938
Accrued compensation 9,0168,372 9,574
Other current liabilities 3,578561 4,289
Accrued expenses 6,3635,953 3,378
Current portion of long-term debt 11,18612,339 10,032
Total current liabilities 68,51960,089 65,961
LONG-TERM DEBT 239,021251,340 237,584
OTHER LONG-TERM LIABILITIES 5955 64
STOCKHOLDERS' EQUITY:
8% nonvoting cumulative redeemable
exchangeable preferred stock;
authorized 1,000,000 shares,
899,891.21 and 865,280.01 shares,
respectively, issued and outstanding,
at liquidation value of $12.50 per share 11,249 10,816
Voting common stock; $.01 par value;
authorized 7,500,000 shares and
3,425,126.01 shares, issued and
outstanding 35 35
Class A convertible nonvoting common
stock; $.01 par value; authorized
7,500,000 shares, 391,740.58 shares
issued and outstanding 4 4
Class B convertible nonvoting common
stock; $.01 par value; authorized
500,000 shares, 400,000 shares issued
and outstanding 4 4
Class C convertible nonvoting common
stock; $.01 par value; authorized
1,500,000 shares, 1,040,000 shares
issued and outstanding 10 10
Additional paid-in capital 65,658 65,658
Accumulated deficit (32,905)(39,628) (24,929)
Total stockholders' equity 44,05537,332 51,598
TOTAL $ 351,654348,816 $ 355,207
See notes to the unaudited consolidated financial statements.
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
REVENUES $ 63,84266,284 $ 18,23521,169 $ 130,126 $ 39,404
EXPENSES:
Salaries and benefits 32,262 6,26432,538 8,265 64,800 14,529
Service fees and other
operating and administrativeadminis-
trative expenses 17,253 4,55716,315 6,380 33,568 10,937
Amortization of loans
and accounts receivable
purchased 8,546 5,1319,490 7,587 18,036 12,718
Amortization of goodwill
and other intangibles 8,0117,965 3,027 15,976 6,054
Depreciation expense 2,524 2692,533 305 5,057 574
Total expenses 68,596 19,24868,841 25,564 137,437 44,812
OPERATING LOSS (4,754) (1,013)(2,557) (4,395) (7,311 ) (5,408)
INTEREST EXPENSE - Net 6,523 1,2657,274 2,476 13,797 3,741
LOSS BEFORE INCOME TAXES (11,277) (2,278)(9,831) (6,871) (21,108) (9,149)
INCOME TAX BENEFIT (3,496) (807)(3,333) (2,562) (6,829 ) (3,369)
NET LOSS (7,781) (1,471)(6,498) (4,309) (14,279) (5,780)
PREFERRED STOCK DIVIDEND
REQUIREMENTS 195225 200 420 400
NET LOSS TO COMMON
STOCKHOLDERS $ (7,976) $ (1,671)$(6,723) $(4,509) $(14,699 ) $(6,180)
See notes to the unaudited consolidated financial statements.
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREESIX MONTHS ENDED
MARCH 31,JUNE 30,
1997 1996
OPERATING ACTIVITIES:
Net loss $ (7,781)(14,279) $ (1,471)(5,780)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 11,039 3,30221,033 6,628
Amortization of loans and accounts
receivable purchased 8,546 5,13118,036 12,718
Amortization of deferred
financing costs 912
Deferred taxes (3,496) (807)(6,829) (3,369)
Change in assets and liabilities:
Accounts receivable - trade (104) (1,304)(2,755) 505
Other current assets (899) (1,524)(216)
Accounts payable, accrued expenses,
and other current liabilities (1,580) 883(10,053) (722)
Net cash provided by operating 5,849 9,980
activities 5,725 4,210
INVESTING ACTIVITIES:
Payments for acquisitions - net of cash
acquired - (36,372)
Loans and accounts receivable purchased (9,217) (1,015)(24,928) (5,945)
Acquisition of property and equipment (1,753) (354)(3,597) (780)
Net cash used in investing activities (10,970) (37,741)(28,525) (43,097)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 14,97515,325
Proceeds from loans 5,000 23,87221,450 97,180
Repayments of debt (2,409) (1,398)
Deferred(4,816) (72,671)
Other financing fees (210) (755)costs (420) (1,718)
Net cash provided by financing
activities 2,381 36,69416,214 38,116
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,864) 3,163(6,462) 4,999
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 14,497 1,469
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,6338,035 $ 4,6326,468
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during period for interest $ 2,3568,609 $ 1,1112,934
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES - During
the threesix months ended March 31,June 30, 1997 and 1996, the Company paid preferred stock
dividends of $433 and $400, respectively, through the issuance of 34,611.2
shares and 32,000 shares of preferred stock, respectively.
See notes to the unaudited consolidated financial statements.
OUTSOURCING SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three monthsand
six month periods ended March 31,June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For
purposes of comparability, certain prior year amounts have been reclassified
to conform with current year presentation. For further information, refer to
the consolidated financial statements and footnotes thereto for the year ended
December 31, 1996.
NOTE B - LOANS AND ACCOUNTS RECEIVABLE PURCHASED
During the three monthsand six month periods ended March 31,June 30, 1997 the Company
purchased $9.2$15.7 million and $24.9 million of loans and accounts receivable
portfolios.portfolios, respectively. The costs of purchased portfolios are generally
amortized on an individual portfolio basis based on the ratio of current
collections to current and anticipated future collections for that portfolio.
Such portfolio cost is generally amortized over a three year period from the
date of purchase.
NOTE C - SUBSEQUENT EVENTS
The Company filed a registration statement related to an offer to exchange
privately placed $100 million 11% Senior Subordinated Notes due 2006 for the
Company's 11% Series B Senior Subordinated Notes due 2006. On April 28, 1997,
the registration statement was declared effective. The Exchange Offer expired
at 5:00 p.m. EST on May 29, 1997 with all $100 million being exchanged.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PAYCO ACQUISITION
Pursuant to an Agreement and Plan of Merger, dated as of August 13, 1996 the
Company acquired Payco American Corp (Payco) on November 6, 1996 in a merger
transaction for an aggregate cash consideration of approximately $150.2
million. The assets and liabilities of Payco were recorded at their estimated
fair market value and an amount equal to the excess of the purchase price over
the fair value of assumed liabilities was allocated to property and equipment,
identifiable tangible and intangible assets and goodwill. Goodwill is being
amortized over 30 years. The preliminary allocation reflected in the
consolidated financial statements for the year ended December 31, 1996
allocates $20.8 million of the excess to identifiable tangible and intangible
assets (including $2.0 million to property and equipment and $14.0 million to
account inventory) and $102.1 million to goodwill.
RESULTS OF OPERATIONS
Three Months Ended March 31,June 30, 1997 Compared to Three Months Ended March 31,June 30, 1996
Revenues for the three months ended March 31,June 30, 1997 were $63.8$66.3 million, compared
to $18.2$21.2 million in the comparable period for 1996. Revenues from contingent
fee services were $32.9$32.5 million for the three months ended March
31,June 30, 1997
compared to $9.7$9.4 million in the comparable period in 1996. The increase in
contingent fee revenues was a result of the acquisition of Payco. Revenues
from purchased portfolios increased to $15.7$17.5 million for the three months
ended March 31,June 30, 1997 compared to $8.5$11.8 million for the comparable period in
1996. Purchased portfolio revenues increased as a result of additional
portfolio purchases, as well as from the acquisition of Payco. Revenues from
outsourcing services increased to $15.2$16.3 million for the three months ended
March 31,June 30, 1997 compared to $0 in the comparable period in 1996. The increase
was due to the acquisition of Payco.
Operating Expenses for the three months ended March 31,June 30, 1997 were $68.6$68.8 million
compared to $19.2$25.6 million for the comparable period in 1996, an increase of
$49.4$43.2 million. Cash operating expenses were $49.5$48.9 million for the three
months ended March 31,June 30, 1997 and $10.8$14.6 million for the comparable period in
1996. Cash expenses increased as a result of the Payco acquisition in
addition to the use of outside collection agencies to service purchased
portfolios. Of the $68.6$68.8 million in expenses for the three months ended March
31,June
30, 1997, $8.5$9.5 million was attributable to amortization of the purchase price
of purchased portfolios (compared to $5.1$7.6 million in 1996), $5.5$6.0 million was
attributable to amortization of account inventory (compared to $2.0$2.5 million in
1996), $2.5$2.0 million was attributable to amortization of goodwill associated
with the acquisitions of Account Portfolios, L.P. (APLP)(API), A.M. Miller &
Associates, Inc. (Miller), Continental Credit Services, Inc. (Continental) and
Payco (compared to $1.0$0.5 million in 1996) and $2.5 million was attributable to
depreciation (compared to $0.3 million in 1996). The increase in amortization
and depreciation expense was the result of additional goodwill and step-up in
the basis of fixed assets recorded in connection with the Payco acquisition.
Operating Loss for the three months ended March 31,June 30, 1997 was $4.8$2.6 million
compared to $4.4 million for the comparable period in 1996. The improvement
in the operating loss was a result of increased revenue attributable to the
acquisition of Payco partially offset by increased salaries and benefits,
increased service fees and increased amortization related to the step-up in
basis of purchased portfolios, goodwill and account inventory related to
Payco.
EBITDA for the three months ended June 30, 1997 was $17.4 million compared to
$6.4 million for the comparable period in 1996. The increase of $11.0 million
in EBITDA reflects additional revenues associated with the acquisition of
Payco and additional portfolios at API, partially offset by the costs
associated with the use of outside collection agencies to service purchased
portfolios.
Interest Expense, net for the three months ended June 30, 1997 was $7.3
million compared to $2.5 million for the comparable period in 1996. The
increase was primarily due to indebtedness incurred to finance the acquisition
of Payco and to finance increased portfolio purchases.
Net Loss for the three months ended June 30, 1997 was $6.5 million compared to
$4.3 million for the comparable period in 1996. The increase in net loss
resulted primarily from increased amortization expense from the step-up in
basis of acquired portfolios, goodwill and account inventory recorded in
connection with the acquisition of Payco and the increase in interest due to
the indebtedness incurred to finance the Payco acquisition and portfolio
purchases.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997 were $130.1 million, compared
to $39.4 million in the comparable period for 1996. Revenues from contingent
fee services were $65.5 million for the six months ended June 30, 1997
compared to $19.2 million in the comparable period in 1996. The increase in
contingent fee revenues was a result of the acquisition of Payco. Revenues
from purchased portfolios increased to $33.1 million for the six months ended
June 30, 1997 compared to $20.2 million for the comparable period in 1996.
Purchased portfolio revenues increased as a result of additional portfolio
purchases, as well as from the acquisition of Payco. Revenues from
outsourcing services increased to $31.5 million for the six months ended June
30, 1997 compared to $0 in the comparable period in 1996. The increase was
due to the acquisition of Payco.
Operating Expenses for the six months ended June 30, 1997 were $137.4 million
compared to $44.8 million for the comparable period in 1996, an increase of
$92.6 million. Cash operating expenses were $98.4 million for the six months
ended June 30, 1997 and $25.5 million for the comparable period in 1996. Cash
expenses increased as a result of the Payco acquisition in addition to the use
of outside collection agencies to service purchased portfolios. Of the $137.4
million in expenses for the six months ended June 30, 1997, $18.0 million was
attributable to amortization of the purchase price of purchased portfolios
(compared to $12.7 million in 1996), $12.0 million was attributable to
amortization of account inventory (compared to $5.0 million in 1996), $4.0
million was attributable to amortization of goodwill associated with the
acquisitions of API, Miller, Continental and Payco (compared to $1.0 million
in 1996) and $5.1 million was attributable to depreciation (compared to $0.6
million in 1996). The increase in amortization and depreciation expense was
the result of additional goodwill and step-up in basis of fixed assets
recorded in connection with the Payco acquisition.
Operating Loss for the six months ended June 30, 1997 was $7.3 million
compared to $5.4 million for the comparable period in 1996. The operating
loss was a result of increased amortization related to the step-up in basis of
purchased portfolios, goodwill and account inventory related to the
acquisition of Payco.
EBITDA for the threesix months ended March 31,June 30, 1997 was $14.3$31.8 million compared to
$7.4$13.9 million for the comparable period in 1996. The increase of $6.9$17.9
million in EBITDA reflects additional revenues associated with the acquisition
of Payco and additional portfolios at API, partially offset by the costs
associated with the use of outside collection agencies to service purchased
portfolios.
Interest Expense, net for the threesix months ended March 31,June 30, 1997 was $6.5$13.8 million
compared to $1.3$3.7 million for the comparable period in 1996. The increase was
primarily due to indebtedness incurred to finance the acquisition of Payco and
to finance increased portfolio purchases.
Net Loss for the threesix months ended March 31,June 30, 1997 was $7.8$14.3 million compared to
$1.5$5.8 million for the comparable period in 1996. The increase in net loss
resulted primarily from increased amortization expense from the step-up in
basis of acquired portfolios, goodwill and account inventory recorded in
connection with the acquisition of Payco and the increase in interest due to
the indebtedness incurred to finance the Payco acquisition and portfolio
purchases.
Financial Condition
March 31,June 30, 1997 Compared to December 31, 1996
Cash and Cash Equivalents decreased from $14.5 million at December 31, 1996 to
$11.6$8.0 million at March 31,June 30, 1997 principally as a result of the purchase of loans
and accounts receivable. The Company held $23.5$22.1 million of cash for clients
in restricted accounts at March 31,June 30, 1997.
Loans and Accounts Receivable Purchased increased from $68.0 million at
December 31, 1996 to $68.7$74.9 million at March 31,June 30, 1997 due to new portfolio
purchases of $9.2$24.9 million induring the first quartersix month period which were partially
offset by amortization of purchased portfolios of $8.5$18.0 million. The amount
of loans and accounts receivable purchased which were considered collectible
within one year decreasedincreased from $42.5 million at December 31, 1996 to $41.8$48.7
million at March 31,June 30, 1997 mainly due to the timing of cash collections based on
the relative age and length of ownership of the portfolios.
The loans and accounts receivable purchased consist primarily of consumer
loans and credit card receivables, commercial loans, student loan receivables
and health club receivables. Consumer loans purchased primarily consist of
unsecured term debt. A summary of loans and accounts receivable purchased at
December 31, 1996 and March 31,June 30, 1997 by type of receivable is shown below:
December 31, 1996 March 31,June 30, 1997
Original Gross Original
Gross Gross
Principal Principal
Value Current Long-term Principal Value Current Long-term
(in millions) (in thousands) (in millions) (in thousands)
Consumer loans . . . . $1,813$1,770 $ 7,445 $ 4,592 $1,813$1,979 $ 5,7948,074 $ 3,7125,934
Student loans . . . . . 323322 7,456 4,699 323 6,369 4,080322 6,404 2,349
Credit cards . . . . . 105101 2,359 1,453 321 4,105 2,631410 4,918 9,656
Health clubs . . . . . 954 23,364 13,865 1,199 21,959 14,0691,236 26,937 6,292
Commercial . . . . . . 10941 1,857 910 112 3,619 2,320
$3,30445 2,357 1,971
$3,188 $42,481 $25,519 $3,768 $41,846 $26,812$3,992 $48,690 $26,202
Most of the portfolio purchases involve tertiary paper (i.e. accounts more
than 360 days past due which have been previously placed with a contingent fee
servicer) with the exception of portfolios purchased under forward flow
agreements under which the Company agrees to purchase charged off credit card
and health club receivables on a monthly basis as they become due.
Deferred Taxes increased from an asset of $5.8 million at December 31, 1996 to
an asset of $9.3$12.6 million at March 31,June 30, 1997. The net deferred tax asset at
March 31,June 30, 1997 and December 31, 1996 was principally due to net operating loss
carryforwards. The realization of this asset is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards in
2011. Management has analyzed the potential sources of taxable income
available to realize the deferred tax asset. The principal assumptions
underlying management's determination that the asset will be realized are that
the strong earnings history of the acquired operations will continue (no
improvement has been assumed), the book value of the Company's assets exceeds
their tax basis and that non-recurring and unusual items which resulted in the
net operating loss carryforwards will not continue beyond a short period of
time. The principal non-recurring and unusual items reflected in operating
results included additional amortization of purchased loans and receivables
resulting from the step up in recorded value to fair value, amortization of
account inventory, additional financing costs expensed in connection with the
refinancing, and other one time expenses. These items are not expected to
continue beyond 1997 or 1998.
The Long Term Portion of Notes Payable increased from $237.6 million at
December 31, 1996 to $239.0$251.3 million at March 31,June 30, 1997. The increase was
primarily due to revolver borrowings of $5.0$21.5 million used to finance
purchased portfolio acquisitions which was offset by principal payments and
reductions of $2.4principal of $5.4 million and the increase in the current
portion of long-term debt of $1.2$2.3 million.
Stockholders' Equity decreased from $51.6 million at December 31, 1996 to
$44.1$37.3 million at March 31,June 30, 1997 due to the first quarter net loss to common stockholders for
the six month period of $8.0$14.7 million which was partially offset by an
increase in preferred stock of $0.4 million.
Liquidity and Capital Resources
As of March 31,June 30, 1997, the Company had cash and cash equivalents of $11.6$8.0
million. The Company derives substantially all of its cash flow from the
operations of its subsidiaries. Capital expenditures were $1.5$3.6 million for
the threesix month period ended March 31,June 30, 1997. Portfolio purchases were $9.2$24.9
million for the threesix month period ended March 31,June 30, 1997. The Company had working
capital of $38.0$48.4 million at March 31,June 30, 1997.
Of the $1.5$3.6 million of capital expenditures for the threesix months ended March
31,June 30,
1997, $1.3$2.5 million represents data processing capital expenditures and $0.2$1.1
million was for other capital expenditures, which include telecommunications
equipment, leasehold improvements, other computer equipment and office
furniture and equipment.
The Company's debt structure consists of senior debt under the Bank Credit
Facility (the Credit Facility) of $142.0 million, indebtedness represented by
11% Senior Subordinated Notes (The Senior Notes) of $100.0 million and other
indebtedness of $5.6$5.0 million. The Company is capitalized with equity of $44.1$37.3
million. Under the Credit Facility, the Company has the ability to borrow an
additional $53.0$36.5 million (net of outstanding revolver borrowings of $5.0$21.5
million at March 31,June 30, 1997) for working capital, general corporate purposes and
acquisitions, subject to certain conditions.
The Senior Notes and the Credit Facility contain financial and operating
covenants and restrictions on the ability of the Company to incur
indebtedness, make investments and take certain other corporate actions. The
debt service costs associated with the borrowings under the Credit Facility
and the Senior Notes significantly increase liquidity requirements. The
Company anticipates that its operating cash flow together with borrowings
under the Credit Facility will be sufficient to meet its anticipated future
operating expenses and to service its debt requirements as they become due.
Additionally, future purchases of account portfolios may require significant
investment. However, actual capital requirements may change, particularly as
a result of acquisitions the Company may make. The ability of the Company to
meet its debt service obligations and reduce its total debt will be dependent,
however, upon the future performance of the Company and its subsidiaries
which, in turn, will be subject to general economic conditions and to
financial, business and other factors including factors beyond the Company's
control.
Inflation
The Company believes that inflation has not had a material impact on its
results of operations for the three monthsand six month periods ended March 31,June 30, 1997.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendantAs described in various legal proceedings involving claims for
damages which constitute ordinary routine litigation incidental to its
business. In addition,the Company's March 31, 1997 10-Q filing, Payco and its wholly
owned subsidiary Payco-General American Credits, Inc. are party to a class-actionclass-
action lawsuit filed in July 1995 by Jimmy Rogers, Lillian H. Rogers, Randy
Humphrey, Nancy Humphrey, Carl Christopher, David Clapper and Virginia
Clapper, as individuals and as class representatives, in the Circuit Court of
Etowah County, Alabama. The suit
alleges that Payco-General American Credits, Inc., which was performing
collection services on behalf of co-defendant Transamerica Business Credit
Corporation ("Transamerica"), committed violations of the Fair Debt Collection
Practices Act (FDCPA) and Alabama state law. Plaintiffs demanded judgment
against defendants for compensatory and punitive damages plus interest and the
costs of the action. In January 1996, Transamerica filed a cross-claim
against Payco-General American Credits, Inc., seeking judgment against Payco-
General American Credits, Inc. for any liability, loss, cost or expense
Transamerica has or will incur. Payco-General American Credits, Inc., has, in
turn, filed a similar claim against Transamerica. On May 13, 1996,
Transamerica entered into a settlement with the settlement class subject to
court approval for a sum of $2.0 million plus $50,000 administrative fees,
plus forgiveness of the debt of 1,818 debtors which Transamerica estimated at
approximately $1.3 million. On August 1, 1996, the court approved the general
settlement but reserved the right to approve individual settlements.
Transamerica advised the court that the benefit to the class was $3.9 million
which represents forgiveness of debt of $1.9 million (instead of the $1.3
million forgiveness of debt noted above). Furthermore, on August 1, 1996, the
plaintiff's motion of certification of a class of 1,818 individuals to which
letters were sent by Payco-General American Credits, Inc. was conditionally
granted. The parties to the lawsuit agreed to non-binding mediation, which
took place on January 20, 1997. No settlement was reached at that mediation.
A hearing date regarding the decertification of the class
has been setscheduled for July 9, 1997 and theSeptember 12, 1997. The trial is expectedcurrently scheduled
to begin on November 17, 1997. The Company believes it has meritorious
defenses to the complaint and the cross-
claimcross-claim in this suit and believes that
the outcome of this litigation will not have a material adverse effect on the
operations or the financial condition of the Company.
Account Portfolios (APLP) hasThere have been notified that the Atlanta office ofno further developments in the FTC is conducting an informal inquiry to determine if APLP has violated any
provision of the FDCPA. The FTC has requested that APLP provide certain
documents and other information regarding APLP's forms, policies and
practices, and APLP has complied with that request. The Company believes that
the ultimate resolution of the FTC's inquiry will not have a material adverse
effect on the financial position or results of operations of the Company.at API.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule (Unaudited)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three monthsmonth period
ended March
31, 1997.June 30, 1997,
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTSOURCING SOLUTIONS INC.
(Registrant)
Date: June 12,August 11, 1997 /s/ JAMES F. WHALEN
--------------------------
James F. Whalen
Executive Vice President and
Chief Financial Officer
[Principal Financial and Chief
Accounting Officer]
/s/ TIMOTHY G. BEFFA
--------------------------
Timothy G. Beffa
President and Chief Executive
Officer